Having lived in Beijing for almost two decades now, I've learned a thing or two about China and doing business in this incredibly fast-moving country. I authored "Managing the Dragon: How I’m Building a Billion Dollar Business In China," and am a frequent speaker and commentator to the broadcast media and a variety of audiences worldwide, including: CNN, CNBC, Fox, BBC, NPR, CCTV, universities, business schools, corporate and industry conferences, the Council on Foreign Relations, Asia Society, YPO and other professional organizations. I also provide timely insights into ongoing developments in the country at www.managingthedragon.com. In 1994 I founded ASIMCO Technologies, which became one of the most important companies in China’s automotive components industry. In 2009 I decided to combine my experience in China with the skills I learned as an investment banker on Wall Street and founded JFP Holdings, where I am currently the Managing Director.

Air Quality In China

BEIJING, CHINA - JANUARY 16: Tourists walk through the door of the Forbidden City as pollution covers the city on January 16, 2013 in Beijing, China. Heavy smog shrouded Beijing with pollution at hazardous levels from January 12. (Image credit: Getty Images via @daylife)

The ink on the paper with my predictions for China was barely dry when what may become “the” story of 2013 came onto the scene—air quality. If I knew then what I know now, I would have had to have included a discussion about air quality.

In the run-up to the Beijing Olympics in 2008, particularly in the three or four months before August, Beijing’s air quality was in the news on a daily basis. While air pollution has remained a nagging problem since then, Beijingers have learned to live with the situation, and there have been enough blue sky days in the capital city to keep the Air Quality Index (AQI) out of the news—until last week that is.

Particulates less than 2.5 micrometers in diameter (PM 2.5) are referred to as “fine” particulates and pose the greatest health risks because they are small enough to directly enter the lungs and the blood stream. The U.S. Environmental Protection Agency (EPA) has developed a formula to convert PM 2.5 readings into an AQI value that can help guide health-related decisions. For example, an AQI value of 50 represents good air quality with little potential to affect public health, while an AQI value over 300 represents hazardous air quality. The U.S. Embassy in Beijing publishes AQI values for Beijing and other cities in China, and the Chinese Ministry of Environmental Protection provides its own air quality data for cities throughout the country.

I’ve lived in Beijing for 20 years, and am generally unaffected by bad food, water or air. Even I noticed it last week, though, when the PM 2.5 AQI approached 900 micrograms per cubic meter. I read somewhere that it was like being in a forest fire — an apt description based on my experience. Hospitals reported increases of up to 30 percent in the number of patients reporting breathing problems; visitors to China received warnings from their risk management departments; and everyone hit the app on their iPhone to check the latest AQI from the U.S. Embassy.

The recent bout of air pollution was exacerbated by weather patterns where the air simply did not move for days on end. Nonetheless, high levels of PM 2.5 particles are in the air due to rapid industrialization, more vehicles, coal burning for heat and power, and lax enforcement of environmental regulations.

This was one story that could not be hidden from the public. “How can we get out of this suffocating siege of pollution?” the People’s Daily, the official Communist Party newspaper, asked in a front-page editorial. Newspaper headlines, as well as the public’s ability to spread information through social media, are putting enormous pressure on the government to take action. What can it do? Stricter enforcement of environmental regulations is one obvious answer, but officials are reluctant to enforce standards for fear of holding back economic growth.

China’s air quality problem has not come into being overnight, and it won’t go away overnight. Therefore, China has to take as many steps in as many different directions as possible to begin addressing the problem. While the growing number of passenger cars is cited as an issue, environmental regulations for cars are already strict. Beginning this January, all gasoline powered vehicles manufactured, imported or sold in China are required to comply with Euro V emissions standards. Europe currently operates according to this standard and is not scheduled to implement Euro VI until 2014. The fact that 70 percent of the cars made each year in China are made with foreign technology makes implementation and enforcement of emissions standards for passenger cars less problematic.

The real culprits in China are the diesel engines for commercial vehicles like trucks and buses that must rely on local technology due to cost considerations. For this reason, the implementation of emissions regulations has lagged passenger cars and is currently at Euro III standards. While Euro IV standards for commercial vehicles are due to be implemented in July of this year, many doubt that enforcement will be effective throughout the country.

Fortunately, there are solutions to even this problem. Take the City of London, the site of last year’s Olympics. In 2008, London created its Low Emission Zone (LEZ) to encourage the most polluting heavy diesel vehicles driving in the city to become cleaner. The LEZ covers most of Greater London, and to drive within the LEZ without paying a daily charge, vehicles must meet certain emissions standards that limit the amount of particulate matter coming from their exhausts. In January, 2012 the LEZ emissions standards became more stringent, and tens of thousands of trucks and buses were retrofitted with filters and other systems to enable them to comply. Other cities all over Europe, as well as the State of California, are on a path to implementing similar programs.

Starting with buses, which operate in areas with the greatest population density, China can do the same. There are over 190,000 big buses operating in China’s cities, more than one-half of them diesel. As London has found, it is not enough to simply mandate higher emissions standards for new vehicles. The problem lies with the older vehicles that may be in service for many years to come. While it can be expensive to retrofit existing vehicles, China’s Central Government and its cities have been willing to subsidize the purchase of expensive CNG and electric powered buses because of the direct impact that heavily polluting buses have on the country’s city dwellers. Retrofitting existing diesel powered buses is a much less expensive alternative than replacing a bus that may still have some years left in its useful life.

China should follow London’s lead and have its existing, diesel engine powered bus fleet retrofitted. Huss Inc., a German company, and Clean Diesel Technologies Inc. (NASDAQ CM: CDTI), an American company, participated in the London program and have proven retrofit filters and systems that can do the trick. These past few weeks make it critical that China begin taking action to address the air quality in its cities.

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